A recent report in The New York Timesover alleged efforts to stymie generic drug use should raise questions among health care plan sponsors, policymakers and patients regarding pharmacy benefit managers (PBMs), the proposed mega merger of PBMs Express Scripts-Medco and the coming wave of generic drugs.

According to The Times, three PBMs are instructing pharmacies to dispense Lipitor® rather than generic Lipitor® once it comes on the market Dec. 1, 2011. An independent analyst told The Times it was an “egregious case” and predicted that the plan sponsors “are going to eat it,” while Watson Pharmaceuticals, the first manufacturer of generic Lipitor®, predicted the deal would raise health costs, undercut generics and confuse consumers.

The case raises questions for employers, the government and other plan sponsors. Chiefly, if Lipitor®’s manufacturer is subsidizing use of its blockbuster drug in a big way, where is the money going?

Perhaps tellingly, when The Times asked one of the PBMs involved, Medco, if it would keep the Pfizer discounts while plan sponsors and patients would pay more than the generic Lipitor price, the company declined comment.

The case calls to mind widespread PBM practices that make one wonder if the industry is prioritizing Wall Street shareholders over clients – plan sponsors (employers, the government, et. al) – and patients. These include spread pricing; hoarding brand drug rebates; refusal to assume a fiduciary duty to clients; and restricting clients’ ability to audit or uncover the PBM’s activities, to name a few.

While these issues aren’t new, plan sponsors, policymakers and patients should pay closer attention going forward for three reasons.

First, the coming generic wave significantly increases the potential pharmacy benefit savings that are on the table. In addition to Lipitor, Plavix and many other top-selling drugs are scheduled to face generic competition in the next year or so. Without proper oversight, those savings may be inappropriately retained by PBMs.

Second, what kind of message do these deals send to consumers or to generic manufacturers trying to bring generic alternatives to the market? The major PBMs are quick to seek credit for generics’ role in reducing costs, but the Lipitor deal is a reminder that their actions may tell a different story and hardly encourage patients to “go generic.” In Medicare Part D, where similar PBM rebate games have been cited as inflating overall program costs, at least two Medicare Part D plans only pay for brand name Zyprexa. A generic equivalent came on the market nearly a month ago. Moreover, PBM-owned mail order pharmacies dispense generic drugs far less often than community pharmacies, potentially due in part to PBM revenue from brand manufacturers, including rebates.

Third, if approved, the proposed Express Scripts-Medco merger would give one dominant PBM much greater leverage to impose one-sided deals on the government and other plan sponsors. That power could very well be used to thwart competition, raise health care costs, restrict patient choice and scuttle efforts to gain greater insights into PBM business practices and revenue streams.

Consumer groups, NCPA, and outside experts have been advocating PBM transparency for years. For example, NCPA encouraged Congress to include PBM disclosure requirements in the Affordable Care Act. They were ultimately enacted and will apply to the state-based exchanges in 2014. NCPA will continue to speak out on the need for PBM reform. We welcome efforts, such as PUTT’s work here, that bring additional energy, ideas and scrutiny to bear. No doubt there are enormous PBM resources dedicated to preserving a profitable, non-transparent business model at everyone else’s expense.

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This article and many others are somewhat misleading. The generic version will not have a significant price drop until July when there are more manufacturers and competition which will cause the price of the generic to drop. Until then, there are some PBMs who have transparency, i.e. pass through pricing (where they pass on all the rebates to the plan/client), thereby protecting the plan from the higher costs associated with having a reduced member co-pay for a generic drug whose price hasn’t yet dropped. Also, most plans that I have seen are allowing members to get the brand Lipitor for a generic copayment, therefore this situation is a win/win for patients and plans.